Venezuela was all over the news last week because of the death of its president, Hugo Chávez. President Chávez passed away after a battle against cancer, which included several surgeries in Cuba. What the international media did not pay attention is to a law approved in January that affects the automotive industry.
How would you react if a law determined that all new vehicles from now on should have a sticker price from the first half of 2009? Moreover, could you, the dealer network, afford to give back to all of your customers what they paid beyond those prices between then and now? This is what the new law requires.
According to Venezuela's Congress, the law was created after their lawmakers inspected and questioned OEMs, dealers and independent stores. They came to the conclusion that vehicles are hidden so customers are misled into thinking that there is no inventory. Then, according to congressmen, these vehicles are sold as used – in Venezuela, used vehicles are more expensive than new ones.
One could say that vehicle sales are already under government control. The government allocates the amount of dollars that OEMs can have to buy parts and assemble vehicles as well as how many units each company can import. The government also uses its joint ventures with a Chinese and an Iranian company to import and assemble the vehicles and to choose who will buy them. Because of that, supply does not meet demand and used vehicles become the only option for many Venezuelans.
An outsider would not know whether or not vehicles are hidden. However, their Congress has also said that the market has grown 'exponentially," which is not true. After a peak of 452,778 light vehicles in 2007, Venezuela's market has gone down dramatically. Last year was an exception, when sales increased 7.5% to 106,833 units. However, Polk does not see any growth in the coming years. Rather, our light vehicle forecast is stable at around 100,000 units/year.
According to the new law, a commission will set vehicles prices and if that does not happen, prices will need to go back to what they were in the first half of 2009. Dealers must refund customers who bought a car for more than those prices and, if dealers fail to do so, they will have to pay double the amount in fines. Inflation in Venezuela is one of the highest in Latin America and has not been below 20% since 2009.
Other interesting items to note are that vehicles that were more expensive than their MSRP will not be insured and OEMs will need to inform the government what the dealers' profit margins are and compare their suggested prices in Venezuela with prices in other Latin American countries.
Posted by Augusto Amorim, Lead Analyst – South America Forecasting, Polk (03.11.2013)